Inflation

Question 1

Inflation

Answer 1

The sustained rise in the general level of prices

Question 2

Purchasing power

Answer 2

When the value of mone fall during a period of inflation (buy less with the same amount of money)

Question 3

Deflation

Answer 3

Sustained fall in the average price level

Question 4

Disinflation

Answer 4

Fall in the rate of inflation

Question 5

Stagflation

Answer 5

A situation with persistent low inflation combined with low economic growth

Question 6

RPI

Answer 6

Measure of the average price level of goods and services in the UK

Question 7

CPI

Answer 7

Measure of the average price level of goods and services in the UK without household costs and cousil tax costs

Question 8

CPIH

Answer 8

CPI including household costs

Question 9

Calculatin CPI

Answer 9

Base year - index

Question 10

Monetarist theory

Answer 10

This means people are increasing their spending on good and services at a faster rate than producers can expand the supply of goods and services
(Market prices are forced to rise)

Question 11

Demand pull

Answer 11

Inflation initiated by an increase in aggregate demand

Question 12

Aggregate demand

Answer 12

Total demand for final goods and services in an economy at any diven time

Question 13

Examples of demand pull inflation

Answer 13

Rising consumer spending
Sharp increase in government spending
Booming demand for exports

Question 14

Cost push inflation

Answer 14

Inflation indtiated by an increase in the costs faced by firms, so they increase prices

Question 15

Examples of cost push inflation

Answer 15

Wages increasing
Higher profit margins
Rising costs of production

Question 16

Imported inflation

Answer 16

Changes in the exchange rate will also cause the prices of goods and services to increase or decrease

Question 17

Costs of inflation on individuals

Answer 17

Reduces purchasing power
People who have fixed will have lower standards of living
It reduces the real income of every person in terms of what their income an buy over time

Question 18

Costs of inflation on firms

Answer 18

Increases costs of production
Workers demand higher wages
Reduces competitiveness of exports

Question 19

Costs of inflation government

Answer 19

Unemployment may rise (more benefits + reduces tax revenue)
State pension and benefits rise
Lower economic growth due to less spending

Question 20

Benefits of low inflation

Answer 20

Stability - firms can predict future prices
Low inflation encourages investment
Workers receive higher/normal wages

Question 21

Shoe leather costs

Answer 21

When individuals need to get more cash as prises rise